The Defense Base Act (DBA) was enacted in 1941, to cover the injuries to civilian employees – primarily a few hundred engineers – during the second world war. The act might have worked then, but it certainly is not working now, nearly 70 years later. As we have blogged in the past, the DBA is a boondoggle, generating huge profits for a small number of insurance carriers and routinely devastating both the civilian workers wounded or killed in war zones and their families. There are over 10,000 claims filed each year: the medical only claims are usually paid; the indemnity claims are dissected, inspected, detected, and ultimately, rejected. A handful of insurers (AIG, CNA among others) are making big bucks at the expense of the wounded and the dead.
NOTE: As bad as the situation is for U.S. citizens wounded and killed in Iraq, it is far worse for foreign nationals.

The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee held a hearing last week on the DBA. The title of the hearing betrays an (understandable) prejudice: “After Injury, the Battle Begins: Evaluating Workers’ Compensation for Civilian Contractors in War Zones.” The hearing focused on the handling of workers’ compensation insurance for federal contractors working overseas, specifically on the inordinate delays in compensation running parallel to the enormous profits for insurers. Among those testifying were Deputy Labor Secretary Seth Harris; Timothy Newman, Kevin Smith and John Woodson, former civilian contractors in Iraq; Kristian Moor, president of AIU Holdings, Inc., a division of AIG; George Fay, executive vice president for Worldwide P&C Claims, CNA Financial; and Gary Pitts of Pitts and Mills Attorneys at-Law.

Kristian Moore defended AIG’s decisions and motives, pointing the finger at a lack of Labor Department oversight and a system overtaxed with cases. “We are doing everything we can do,” suggested Charles Schader, senior vice president and chief claims officer for AIU Holdings. Yeah, everything you can do to make money.

At the conclusion of the hearing, Dennis Kucinich (D-Ohio) warned AIG executives that he plans to demand copies of internal memos and documents that will link claims denials to the company’s profits. Most of us do not get terribly excited by the prospect of reading claim files, but these will undoubtedly provide some compelling reading. While I doubt that the subcommittee will find a direct, written link between denials and profits, the rationale for the individual claim denials – in the face of compelling evidence of compensability – should prove riveting. Was it incompetence or was it greed? Something cruel, heartless and cynical took place in the back rooms of carriers with responsibility for civilian claims. If you like Edgar Alan Poe, you’ll love the claims files of AIG and CNA.

Risky Job, Risky Work
Seth Harris, the new deputy secretary at the U.S. Department of Labor, is in charge of this mess for the government. He’s been on the job for 3½ weeks. Congratulations on the new job, Seth! (You might want to keep your resume circulating.) Seth has been working less than a month, but he has already figured out that the system is in need of fundamental change.

The work of insurers usually involves risk transfer. Under the perverse incentives of the DBA, the risk is absorbed by taxpayers, the pain falls on civilian workers and their families, and the profits – running from 37 to 50 percent of premiums – are pocketed by the carriers. Risk without transfer. It’s amazing that AIG can generate this level of profit in one division and still only trade at $1.40 a share. I guess that they have been looking for risk in all the wrong places.

John Csaid

It is hard to understand in a world of profit, why AGI, CNA would feel their irresponsibilities of paying claims should be the fault of the Labor department, when all you hear is keep overhead down, common sense (not applicable for many big companies) one would think oversight would not be needed had you not been doing what you were supposed to. OOOps my bad, why would or should I think that a company as large as these would care about the people as opposed to the profit.

Widow in Californiasaid

Everything I have read and experienced with my own case only leads to “Guilty” as a verdict for these insurance carriers. Lost medical records? If I was an insurance carrier I would want to be sure that they were available to help determine if the case was valid or not. The reason these medical records get “lost” just proves to me that the information in them, all of them, is detremental to the defense of said claims. To keep their profit margins up, they tamper with the most obvious evidence. This causes the claimants and their attorney’s to spend hours trying to find someone that was there and witnessed the events the claimant went through. They hope they find someone that is not with the company anymore. They can talk freely and give honest testimony, as opposed to someone that is still an employee, who fears they will loose their job if their testimony is a positive for the claimant. The funny thing is, everything I have talked about is considered one of those “silent facts”. Everyone knows about it as facts, but no one seems to know what to do about it. Another issue I have noticed is how the Attorney’s for the insurance companies will drag out EVERY case. They are in a win win position, while the claimant is loosing everything that they have worked so hard for over the years. However there is one part of that scenerio that no one has mentioned. What about the claimants attorney’s? They invest time and a lot of money to acheive a winning outcome. Lets say an attorney has 100 DBA cases and they are all new to this attorney. Okay, I have heard several times that the average claim takes 5 years before a settlement is reached. The attorney for the claimants has to give, his or her, all which includes financial investment in the form of hours paid to assistants, hunting down evidence, travel expenses, etc…. If the expense’s to fight a case become too burden some, who’s to say that it couldn’t effect the out come of the case and the amount of “effort” the attorney puts forth. I don’t believe the attorney’s that fight for us are part of that “win/win” class. Just speaking from my heart now, but if I were one of the attorney’s that fight for the contractors, I might become more apt to pick and choose my battles just for my own survival. Everyone of us that are fighting claims understands about “fighting to survive”. I feel the luxuries the opposing attorney’s have been given open the door to greed and abuse of the system. It isn’t fair to the attoney’s that are actually fighting for the people. When the attorney’s for the insurance companies stall and drag out these claims they are only padding their own pockets while our attorney’s know that as the cost of a case goes up, they have to know when to say when, because they are not garanteed win or loose like the insurance companies attorneys. I maybe totally wrong, however this is what I see and have been understanding to be true. Does that sound fair? If I am off base, please forgive me, and I would not be offended by being corrected.